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Anti-Kickback Statutes in New York and Tenant or Subtenant Violations

This is an analysis of federal anti-kickback statutes and what a landlord/owner or tenant can do to protect themselves from tenant or subtenant violations.

42 USCA 1320a-7b(b) federal law states that no medical provider shall make a referral in exchange for remuneration of any kind, whether directly or indirectly (including non-monetary compensation). In general, most healthcare providers know:

They cannot directly take any kind of cash;

Accept a reduction in rent; or

In the case of a subtenant, charge more in rent,

in order to increase the volume or value of any patient referrals.

While this is generally unique to the healthcare industry, the increase in medical rentals means that not only physicians who sublet space to other physicians, but regular landlords can be affected by these statutes as well. All landlords need to be wary of certain arrangements to avoid any investigation into their structure or rental arrangements, and prevent any loss of rent in the event a medical tenant is found in violation.

This is of paramount importance, because the anti-kickback statutes provide a criminal counterpart. This could mean any law enforcement agency can enter the premises and close it down, preventing, stalling, or slowing any rental or eviction proceedings.

In general, there is a safe harbor in that if a rent is fair market value and is not related to any patient referrals, (which should be the case for a landlord who is solely in the business of operating and owning real estate) then there should be no problem.

However, this can affect an owner/landlord of a building in the sense that if a tenant is engaged in such conduct, and the practice is closed down, not only could they lose a tenant, but under criminal regulations, law enforcement could seize various assets and prevent access to the premises.

Currently, there are numerous instances of such investigations into illegal kickbacks, some of which open the door to Racketeering Influenced Corrupt Organizations Act (RICO) investigations, as well. As such kickbacks tend to be repeated over periods of time, it would naturally open the door to exposing a tenant or subtenant to these types of enterprise corruption investigations. As stated above, the landlord or a physician renting space to a subtenant would likewise have issues, even if not directly involved. At a minimum they would be required to provide documents, deal with the headaches of an investigation, or incur the loss of rent due to the closure of suspect facilities which leads to additional costs due to a tenant’s or sub-tenant’s conduct.

An effective way to help mitigate this would be to place representations in physician leases by non-physician landlords stating their tenants and subtenants will not engage in any such conduct, and if such conduct is discovered, the lease can be terminated immediately. Physicians who sublease their space can also include such representations. These would at least provide a non-medical landlord or a physician renting to a subtenant the ability to remove themselves from the conduct of a tenant (provided they were not involved in any wrongdoing themselves.)

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